Investment company AllianceBernstein has calculated that the true US debt — 1832%. The company took into account not only the traditional levels of public debt, such as bonds, but also financial debt, and future obligations on the so-called schemes, such as social and medical support, state pension.
“Although the picture is terrible, these figures do not prove that we are doomed or that the debt crisis is inevitable” — said in the report Philip Karlsson-Slezak, chief US economist at AllianceBernstein.
Warnings about the potential dangers of debt appear when the total outstanding Federal debt increased to 22.5 trillion dollars, or about 106% of GDP. Excluding domestic obligations, the public debt is 16.7 trillion, or 78% of GDP.
According to the latest projections of the congressional Budget office, this last amount, which is considered more relevant as an economic burden, may increase to 105% by 2028. However, the Control of the U.S. Congress on the budget notes that the numbers may be revised depending on government policies.
Proponents of fiscal reform argue that the impact of the debt has really reached the point where the necessary actions.
“We are rapidly approaching a situation when we dig our debt hole, which has a profound negative impact on the economy for probably decades to come,” added Macguineas.
In their calculations AllianceBernstein takes debt from various sources and compares them with GDP as follows:
100% of GDP, using Federal, state and local government debt combined.
150% for households and firms.
450% for the financial debt, which carries a “conceptual problems and risks”, namely that the debt held by financial firms is often the potential in a worse case using various derivative instruments, which may have a high conditional levels that are unlikely to ever be implemented.
27% in trust for social insurance programs.
484% that appreciates all the promises of existing social security programmes.
633%, which is the “infinite horizon” liabilities for social programs, not just traditional 75 years used in the calculations.
This amount gets the debt load at around 2000%, although Karlsson-Slezak indicates that different debts carry different risks.
“A default on Treasury bonds would be catastrophic for the world economy at the time, the changes in the policy (albeit a painful one for those whose future benefits have been reduced) would barely have been recorded on the economic horizon,” he wrote.
Moody’s Investors Service recently warned that a growing number of companies with a junk rating can “increase dramatically” in the next downturn, “significantly increasing the risk of default.”
“Then in the next downturn of the credit cycle, as a rule, the lower the credit quality of today’s population speculative level means that the number of defaults may exceed the peak of the great recession, 14% of all of issuers,” says Christina Padgett, senior Vice President of Moody’s.
Currently, however, rates on credit defaults remain low, because the economic conditions are favorable.
Similarly, at the macro level, fears of a recession were unfounded, as the growth continues, albeit at a slower pace than in 2018.
Maya Macguineas from the Committee for a responsible Federal budget said that now country now is the time to begin something to do with the debt situation.
“First, you begin to have politicians along with voters, instead of to promise free. Second, you acknowledge that the time for this is when your economy is strong,” she said. “When people argued about more borrowing, they had to do the opposite. We are still not in a recession. It’s time to use long term strategy.”